Stocks: Tuesday is the Best Day for the Market

By Ben Levisohn

Make that six days of gains for the S&P 500, after the benchmark got a big boost from Home Depot (HD), Goldman Sachs (GS), Harley-Davidson (HOG), Netflix (NFLX) and Wynn Resorts (WYNN).

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The S&P 500 gained 0.4% to 1,879.55, its sixth consecutive rise and the longest winning streak since Sept. 2013. The Dow Jones Industrial Average rose 0.4% to 16,514.37, while the Nasdaq Composite advanced 1% to 4,161.46. In other words, it was just your typical Tuesday–the only day of the week that has averaged a gain in all three indexes this year. (Barron’s Kopin Tanlooked at the Friday effect earlier this year.)

Netflix is staging something of a resurgence, but it wasn’t too long ago that it was just another beaten-down momentum name. JPMorgan Cazenove’s consider whether momentum’s underperformance signals tough times ahead for the market:

We believe one of the factors spooking investors is the significant reversal in style leadership within the market. The “momentum stocks” peaked in the US at end February. Price momentum factor is down 7% since. Biotech and Internet ETFs are down 20%. Is the rotation out of the momentum winners necessarily bad for the overall market?

We don’t think so, as the bull markets have shrugged off much greater “momentum” reversals historically. Looking at the previous six rotations in leadership, the falls were of the order of 10% over the similar time frame. Importantly, these past “momentum” reversals typically did not have a negative impact at the market level. Equity indices were up on most of these occasions.

Markets, of course, never go straight up or straight down: they zig-zag. Short term, we would not be surprised if the market took a breather after its strong gains last year. Additionally we may see volatility related to news coming out of the Middle East and Russia. But longer term, we remain very optimistic on the outlook for U.S. equities…[We] believe U.S. equities are very attractive relative to the alternatives. The great bull market in bonds appears to be over. The great decades of emerging market growth appear to be behind us. Hedge funds in aggregate have been mediocre performers for some time. We expect money to flow back into stocks, particularly U.S. equities. This is a technical (money flow) argument for a continued bull market. It augments the fundamental case based on earnings and valuation.

About Stocks To Watch

Earnings reports, corporate strategies and analyst insights are all part of what moves stocks, and they’re all covered by the Stocks to Watch blog. We also look at macro issues, investor sentiments and hidden trends that are affecting the market. Stocks to Watch gives you the full picture of the U.S. stock markets, all day long.

The blog is written by Ben Levisohn, a former stock trader who has covered financial markets for the Wall Street Journal, Bloomberg and BusinessWeek.